Greg Hinz On Politics

S&P removes junk from Illinois' future

Illinois debt no longer is in danger of being downgraded to junk level in the view of one of the major ratings agencies—the first dividend of sorts from passage of a new state budget and tax hike last week.

In a statement this afternoon, S&P Global affirmed the state's current BBB- rating, removing the state from a "credit watch with negative implications" that could have led to junk status.

S&P said its actions "reflect that following Illinois' enactment of a fiscal 2018 budget (and subsequent override of a veto by Gov. Bruce Rauner) . . . the odds of its general obligation credit rating falling to below investment grade within the next year has substantially diminished."

It added, "Through a combination of spending cuts and tax increases, the budget package brings the state's revenue and expenditure base much closer to structural alignment."

Despite the budget, "The state almost certainly (will) suffer an extended hangover" from two-year impasse that preceded it. "Revenue spent on servicing and retiring the roughly $15 billion in unpaid bills is unavailable for contribution to the state's severely underfunded pension systems or to fund state services. It also crowds out fiscal capacity the state might otherwise use to accommodate a reduction in tax rates."

"Nevertheless," it concludes, "despite being fractured and delayed, passage of the budget represents an affirmation of lawmakers' collective willingness to prioritize the state's fundamental claims-paying ability at an investment-grade level."

S&P's action won immediate praise from Senate President John Cullerton. Said his spokesman, "The entire point of this balanced budget was to end the chaos and move the state toward the stability it desperately needs. Those efforts appear to have been recognized and appreciated, but obviously more work is needed to get Illinois back to greatness."

No word yet from Rauner, who in recent days has lost or pushed out almost all of his media team, or House Speaker Michael Madigan.

Update, 4 p.m.—In a statement, Madigan called S&P's action "a strong signal that the balanced budget enacted by Republicans and Democrats is an important step in the right direction."

"I’m grateful for the legislators on both sides of the aisle who used this time to work together and make the difficult decisions needed to start getting Illinois back on track," he said in the statement. "There is more work to be done, and it’s clear from S&P’s statement that rating agencies, like all Illinois residents, are hoping Governor Rauner will work in good faith with legislators to address these challenges rather than rejecting compromise by turning further to the extreme right."